One hundred billion dollars! Wow!
That's a yuuuuge number. So big, in fact, that the figure -- which might possibly, maybe, one day, conceivably, if all goes well become the size of SoftBank Group Corp.'s Vision Fund -- is overshadowing the more immediate realities of the Japanese telco-cum-VC fund.
Unfortunately, a big fat checkbook and a photo op with the U.S. president aren't enough to mask the fact that SoftBank's bread-and-butter business of supplying fat wireless pipes to consumers who want to browse Facebook or chase Pokemon hasn't posted a net profit in the U.S. for 10 consecutive quarters.
SoftBank's only saving grace is the fact that its domestic telecom business is bearing the burden of carrying Sprint Corp. until such time as Masayoshi Son can finally turn around the business.
In a presentation to investors this week, the chairman spoke about his regret in buying Sprint on the assumption that it could close a merger with T-Mobile US Inc., a move that has since faced regulatory pushback. But, as Son admits, it's stuck with Sprint and needs to make the best of a bad situation.
That's no consolation for investors, though, with group net income for the December quarter missing estimates by 5 percent amid a decline in revenue. While SoftBank's 2013 purchase of Sprint helped the No. 4 U.S. operator cut churn and boost subscribers, such improvement has done little for the top line while the bottom line has improved only through cost cuts. And in the world of telecoms, it's hard to maintain better network quality and coverage if you're margin-improvement strategy includes underspending competitors on capital expenditures.
My concern here is that aggressive pricing coupled with penny-pinching won't build a sustainable business. But then, maybe that's not SoftBank's goal. Son's meeting with the incoming president in December has led to a 28 percent Trump Bump for the Tokyo-traded stock with little change to the fundamentals.
There are two possible reasons for this sudden optimism. One is the belief that the new administration will actually facilitate a merger with T-Mobile, ending the stress that caused Son's hair loss (his joke, not mine). The second is that the SoftBank Vision Fund, announced last year, will truly deliver a string of Alibaba-sized winners.
If the latter is the reason, then it's one heck of a gamble given that SoftBank will be saddled with finding ways to profitably deploy one of the largest piles of cash in VC history while only getting around 25 percent of the upside. As if to prove the point, SoftBank just wrote down the value of two Indian investments -- e-commerce provider Snapdeal and ride-hailing startup Ola -- by $475 million, the Business Standard reported, citing company filings.
More likely, investors are betting that a long-awaited Sprint merger would end the bloodshed and that the new administration will allow it to happen. With a $100 billion pile of cash and a blank checkbook to wave at the White House, SoftBank shareholders must be hoping that famous Trump Tower visit will become a golden handshake.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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